Jobless rate tipped to rise as mining boom loses steam

AUSTRALIA'S economic growth will slow to well below its long-term average in the coming year, pushing up unemployment to levels not seen since the global financial crisis, leading economists predict.

As the mining boom continues to lose steam this year, a survey has found top economic thinkers believe the nation will experience weaker activity and sluggish jobs growth, while the budget will remain in deficit.

None of the economists included in BusinessDay's economic survey, published on Saturday, is predicting a recession. However, the survey paints a picture of softer conditions caused by a slowdown in mining investment.

On average, the 23 economists forecast growth of 2.5 per cent this financial year, slower than the latest budget forecast of 3 per cent and the long-term average of 3.25 per cent.

Although the panel expects a slight improvement in the second half of the year, it says the weaker conditions will push more people out of work, with the unemployment rate tipped to hit 5.7 per cent by December, up from 5.2 per cent now. If this occurs, it will be the highest jobless rate since the tail-end of the global financial crisis in September 2008.

The chief economist at AMP Capital, Shane Oliver, said the main way in which people would experience the weaker economic conditions would be through the labour market.

''There will just be an air of softness hanging over the economy. So if people want to change jobs it might be harder to find a new one, and there will probably be more lay-offs,'' Dr Oliver said.

Only three of the panel think the government can still deliver a budget surplus this financial year. The average prediction is for an $8.7 billion deficit.

The Treasurer, Wayne Swan, ditched his surplus pledge days before Christmas, but is pressing ahead with previous spending cuts, such as this week's reduction in payments to some single parents.

A professor of economics at Charles Darwin University, Bill Mitchell, slammed Mr Swan's commitment to run a tight budget at a time of slower growth, saying it would take a hefty toll on jobs.

''The government has obviously withdrawn its prediction of a surplus, but its behaviour is not changing,'' said Professor Mitchell, who expects unemployment to hit 6.2 per cent.

''They do not seem to have twigged that while we've been in the throes of a relatively significant private investment boom … they've been wiping out the positive effects of that.''

With business investment tipped to slow sharply to 5.4 per cent, from 14.2 per cent in the latest quarter, the panel thinks more interest rate cuts will be needed.

The chief economist at BT Financial, Chris Caton, said the critical issue would be whether other industries could fill the gap left by the fading mining boom.''The biggest point of interest is what happens when the mining capital expenditure boom comes to a peak,'' he said.

''What happens to growth and how fully do other parts of the economy step in?''

Dr Caton, who says he is more optimistic than most analysts, said industries such as retail and manufacturing would pick up some of the slack left by a weaker mining sector, as interest rate cuts would encourage shoppers to spend more.

The Australian dollar, which has been a boon for shoppers and overseas travellers but bad for many businesses, is forecast to remain above parity with the US dollar, at $US1.02.